Superintendent of Public Instruction Marilyn Howard recommends $1.047 billion
in overall support for K-12 education (an 6.0% increase over the current year),
while Governor Kempthorne and the Legislature's Joint Finance and Appropriations
Committee (JFAC) each recommend $1.035 billion (a 4.9% increase). JFAC's recommendation
will go to the House and Senate for floor votes.

Our briefing materials ask you to consider these recommended levels of overall
support against several relevant benchmarks including the state's estimate that
enrollment in public schools will be 3% higher next year, Idaho's rank of 47th
in the nation in per student funding, Idaho's rank of 25th in the nation in
public school spending per thousand dollars of personal income, and achievement
benchmarks showing that Idaho students perform above average on national standardized
tests.

Our briefing materials also ask you to consider the school facilities funding
issue currently before the Legislature. The Idaho Supreme Court recently ruled
that the Legislature must revise its system of school facilities funding in
order to meet its constitutional obligation to provide a "general, uniform,
and thorough system of public, free common schools."

A Republican proposal recommends that the State contribute $8 million in ongoing
annual funds and $25 million in a one-time appropriation that expands State
facilities funding programs. A Democratic proposal recommends that the State
contribute $63.5 million in ongoing annual funds and $35 million in a one-time
appropriation to expand State facilities funding programs. A separate proposal
before the Legislature would amend the Idaho Constitution by reducing the supermajority
required to pass a school facilities bond from two-thirds to 60% of school district
voters.

Our briefing materials ask you to consider these proposals in the context of
a review of the Supreme Court's ruling, an analysis of the current State system
of funding school facilities, and a description of the total facilities costs
that school districts confront.

I. Introduction

As it does every year, the state government must decide this year how much
financial support to provide for Kindergarten through 12th Grade education for
the next year. This year, the state government confronts the additional question
of how to revise its system of school facilities funding. These briefing materials
aim to provide you with information relevant to three questions:

Is the overall amount that the state will spend on K-12 education too much,
too little, or about right?

Is the increased amount that the state will contribute to school facilities
funding too much, too little, or about right and is the manner in which that
contribution is made appropriate?

Do you support a proposed Constitutional amendment to reduce the supermajority
required to pass a school facilities bond from 2/3rds to 60% of school district
voters?

It will be helpful to recognize that you're about to wade into the sometimes
complicated discussion about education funding. In Section II you will find
a discussion of overall support for K-12 education. In Section III you will
find a discussion of State support for school facilities in particular. We've
made this as straightforward as we're able, but the materials will certainly
demand your full attention. It's worth it: The state is profoundly affected
by its education funding levels.

II. Funding for K-12 Education

Marilyn Howard, the Superintendent of Public Instruction, recommends $1.047
billion for Kindergarten through 12th grade education next year. Governor Kempthorne
and the Joint Finance and Appropriations Committee (JFAC) of the Legislature
each recommends a budget of $1.035 billion. JFAC's recommendation will now go
to the House and to the Senate for floor votes.

We will try to provide you with several benchmarks or comparisons for your consideration in answering these questions.

Comparisons to the Last Two Years

The first benchmark against which to measure next year's proposed budgets are
the K-12 budgets of the last two years. As summarized in Table 1, Superintendent
Howard's proposal increases funding 6.0% over the current fiscal year (2005-2006),
Governor Kempthorne's and JFAC's budgets increase funding 4.9%. The current
year's budget was a 2.3% increase over the last fiscal year's budget (2004-2005).

In comparing the recommended budgets to previous budgets it is important to
note that enrollment in public schools is increasing. The state currently estimates
that enrollment will be 3% higher next year than this year. This means that
the state would need to increase K-12 funding by 3% to maintain the effective
level of support provided last year, without factoring in inflation. If one
includes an adjustment for inflation (currently around 2% or 3%) as well as
increased enrollment, then the state would need to increase funding for schools
by around 5% to provide the same effective level of support as last year.

Table 1
Comparison of Proposed K-12 Budgets with K-12 Budgets for Last Two Years

Last Year

% Increase this Year over Last Year

This Year

Proposed for Next Year

% Increase of Next Year over This
Year

$965 million

2.3%

$987 million

Superintendent Howard:
$1.047 billion

6%
(3% when adjusted for increased enrollment)

Governor & JFAC:
$1.035 billion

4.9%
(1.9% when adjusted for increased enrollment)

Source: FY 2007 Idaho Legislative Budget Book, pp. 16
-17.

Comparisons to Other Areas of the State Budget

The second benchmark we provide is Governor Kempthorne's budget recommendation
for everything but K-12. (We do not provide a similar comparison of JFAC budgets
because it has not yet set its recommended budgets for each agency.) Governor
Kempthorne proposes a budget of $1.274 billion for everything but K-12.
This is a 6.8% increase over this year, compared to the 4.9% increase that he
proposes for K-12. Table 2 summarizes the proposed increases in various aspects
of the overall budget compared to K-12.

As can be seen from that table, the increases for Health and Human Services
and for Public Safety drive most of the increase in the rest of the budget.
Both are large portions of the budget that are increasing significantly. With
respect to the Health and Human Services budget, the increase is driven in large
part by the rising health care costs, particularly the state's obligations under
the federal Medicaid program, which pays for medical assistance for those with
low income. With respect to the Public Safety budget, the increase is driven
mostly by the increasing costs associated with housing the state's rising prison
population. Although reforms are being discussed that might address both of
these critical pressure points in the budget, they provide little hope of relief
in the short term. While there may not be any easy solutions to these rising
costs in the near term, many argue that it is unwise to let healthcare and prison
costs constrain investment in education, since better educated children tend
to grow up to be healthier, more productive, and less prone to crime.

Table 2
Comparison of Governor's Proposed K-12 Budget with His Other Proposed Budgets

Budget Area

This Year

% Increase this Year over Last
Year

Proposed for Next Year

% Increase of Next Year over This
Year

K-12 Education

$987 million

2.2%

$1.035 billion

4.9%

Rest of State Budget Other than K-12

$1.12 billion

6.5%

$1.274 billion

6.8%

Education other than K-12 (e.g. Higher Ed)

$371 million

2.8%

$390 million

5.1%

Health & Human Services

$483 million

12.6%

$522 million

8.1%

Public Safety

$194 million

5.4%

$219 million

13.1%

Natural Resources

$39 million

5.4%

$39 million

.1%

Economic Development

$22 million

4.8%

$23 million

6.3%

General Government

$85 million

1.2%

$80 million

- 5.5%

TOTAL BUDGET

2.181 billion

4.6%

2.310 billion

5.9%

Source: Source: FY 2006 Idaho Legislative Budget Book,
p. 17.

Comparisons to K-12 Support in Other States

As seen in Table 3, Idaho ranks 47th among the 50 states in how much it spends
on each student in public schools. However, Idaho also ranks 25th in how much
it spends on K-12 education as a proportion of the personal income of its residents
(see Table 3). How can we be so generous in terms of the proportion of our income
we pay for K-12 education through taxes, and yet provide so much less per student
that most states? There are primarily two reasons. First, Idaho has lower levels
of personal income than most states. Second, Idaho has a higher proportion of
its population who are school age. In other words, relative to other states,
Idahoans have fewer adults earning less but supporting more children.

Student achievement can be measured in a variety of ways. One of the most definitive
tests used to compare the academic achievement of students in different states
is the National Assessment of Student Progress (NAEP). As seen in Table 4, Idaho
is above average in its NAEP scores. Comparing Idaho's per student spending
(Table 3) with the achievement of our students (Table 4) indicates that we get
a better bang for our educational buck than most states. While Idaho is well
below the national average in terms of per student expenditure, it is above
average in achievement.

Table 4
Idaho Student Achievement on the National Assessment of Student Progress
(NAEP) Compared to National Averages

Of course, decisions about how much to increase funding of K-12 education are
necessarily made in the context of limited resources. If Idahoans wish to increase
the funding for K-12 education over what the governor or JFAC have recommended,
the additional dollars must presumably come from cuts to other areas of the
budget, tax increases, or a combination of both. We'll take a brief look at
the budget cutting options and then the tax options.

It is challenging to find places to cut the budget right now in order to free up additional dollars for K-12 for three reasons:

Budget Pressures from Rising Health Care and Prison Costs:
As discussed above, there appear to be few options in the short term for avoiding
significant budget increases for healthcare programs, such as Medicare, and
for rising prison populations. These budgets are such a large percentage of
the overall budget—health and human services are 22% and public safety
is 10% of the total budget—that the large increases in these areas significantly
constrain the budget cutting options.

Size of Public School's Budget: The public schools' budget
is such a large percentage (45%) of the overall state budget that it takes
relatively large cuts elsewhere to provide a relatively small percentage increase
in the public schools budget. Only 23% of the state budget is not in K-12
education, heath and human services, or public safety. A 5% decrease in these
other areas would provide about a 2.5% increase in K-12 education funding.

Already Tight Budgets: The recent economic downturn and
somewhat sluggish recovery have put pressure on all areas of the budget for
the last several years makes finding acceptable places to cut the budget more
difficult than it otherwise would be.

Finding acceptable tax increases is also difficult. This is particularly true
in a year in which the dominant issue before the Legislature is the need for
property tax relief. Property taxes rose 8.6% overall last year and an average
of 5.8% annually for the five years before that. Property taxes specifically
on homes have been going up even faster—11.7% on average last year. These
increases have given rise to significant pressure to reduce the property tax
burden, particularly on homeowners. In fact, the only issue that we as members
of The Common Interest rated as more important this year than K-12 education
funding, was property tax relief. Over 35 property tax bills have been introduced
this session.

Two major pieces of property tax legislation appear likely to pass that would
have a significant effect on K-12 education. First, it appears likely that a
signficant expansion of the Homeowner's Exemption will pass. This legislation
would not affect how much state money is available to support schools,
but would significantly reduce the amount of money local school districts raise
through property taxes. About 25% of local school funding comes from property
taxes and about 70% comes from state funding (primarily raised through sales
and income tax).

Second, it appears likely legislation that eliminates half of the school property
tax and replaces most of that revenue with a half-cent increase in the sales
tax will pass. Proponents of this measure argue that it only shifts the source
of funding for schools and that it will not decrease overall school funding.
Opponents, which include school boards, school adminstrators, and teachers,
observe that the legislation does not require that the new revenue from the
half-cent increase in sales taxes go to schools. Rather, schools must compete
with other aspects of the state budget, including the ever-increasing budgets
for Medicaid and prisons, for that revenue. Given the level of commitment that
the Legislature has shown for education in the past, many argue, the effect
of this measure will be to decrease support for schools. For a review of the
entire property tax issue, including its possible effects on schools, go to
our PROPERTY TAX BRIEF.

Two separate measures not related to property taxes would increase the sales
tax by one cent and dedicate that revenue to schools. The first is a bill that
has been introduced this session. The second is a voter initiative effort being
led by the Idaho Education Association, the union for teachers in the state.

The Idaho sales tax was increased from five cents on every dollar to six cents
three years ago as a temporary measure to deal with decreased tax revenue because
of the economic downturn. That temporary 1-cent increase expired last June.
If it were restored, it would bring in more than $200 million in additional
revenue per year.

Another option for providing more funding for K-12 education is to close some
of the many tax breaks currently on the books. Those who support this approach
argue that special interests have managed to pass many tax breaks that do not
serve the public interest.

As you think about what level of overall K-12 education funding you would prefer,
it may be useful to consider whether you would prefer funding that does not
necessitate budget cuts or higher taxes—funding at about the level that
JFAC and the Governor have proposed. You might also consider whether you think
higher levels of funding are appropriate and, if so, whether the additional
funding should come from budget cuts in other areas, or tax increases, or some
combination of both.

Please note that our review of the K-12 education budget focuses on the general
fund portion of that budget, rather than on the dedicated funds and federal
funds portion, because the general fund is the largest portion of the K-12 budget
(71%) and the portion over which there is the greatest budgetary discretion.

III. School Facilities Funding

This year, the Legislature must also address the particular question
of State funding for public school facilities. A Republican proposal recommends
that the State contribute $8 million in ongoing annual funds and $25 million
in a one-time appropriation to expand State facilities funding programs. A Democratic
proposal recommends that the State contribute $63.5 million in ongoing annual
funds and $35 million in a one-time appropriation to expand State facilities
funding programs. The Legislature also has before it a proposal to amend the
Idaho Constitution by reducing the supermajority required to pass a school facilities
bond from two-thirds to 60% of school district voters.

Are the proposals for additional State school facilities funding too high,
too low, or about right? How does the State provide that funding to school districts
in the most appropriate manner? Should we amend the Constitution to reduce the
supermajority required to pass a school facilities bond from two-thirds to 60%
of school district voters?

To assist you in answering these questions, we will consider the proposed legislation
in the context of an analysis of the Supreme Court decision that demands legislative
action, an analysis of the current school facilities funding system, and an
analysis of facilities costs that school districts confront.

The Supreme Court Decision: ISEEO v. The State of Idaho

Last December, the Idaho Supreme Court ruled in Idaho Schools
for Equal Educational Opportunity (ISEEO) v. The State of Idaho that the
State had "failed in its constitutional duty to provide a thorough education
for Idaho's public school students in a safe environment conducive to learning."
Specifically, the Supreme Court upheld a district court's determination that
the legislature had failed to establish a sufficient system for funding school
facilities. As a result of the Supreme Court's 2005 ruling, the Legislature
must now create a system to meet its constitutional obligations.

This Supreme Court decision is momentous, in part, because the
Court has been working to establish the Legislature's specific obligations regarding
school facilities funding for over fifteen years. ISEEO v. The State of
Idaho first entered the courts in 1990 and has come before the Supreme
Court no less than five times. Of course, the Legislature's responsibilities
regarding public education in general—the basis of the ISEEO v. The
State of Idaho lawsuit—are defined in the Idaho Constitution. Article
IX, Section 1 of the Constitution reads:

The stability of a republican form of government depending mainly
upon the intelligence of the people, it shall be the duty of the Legislature
of Idaho to establish and maintain a general, uniform and thorough system
of public, free common schools.

During the case's third appeal in 1998 (ISEEO III), the
Supreme Court ruled that "a safe environment conducive to learning is inherently
part of a thorough system of public, free common schools" and remanded
the case to the district court for that court to determine whether or not the
Legislature had established a means for funding facilities that provided such
an environment. In 2001, the district court determined that the Legislature's
system of school facilities funding was unconstitutional because "reliance
on loans alone to pay for major repairs or the replacement of unsafe school
buildings was inadequate for the poorer school districts."

As the Supreme Court has ruled on the Legislature's obligations,
the Legislature has taken actions in an effort to meet those obligations. The
Supreme Court's most recent ruling acknowledges several of the Legislature's
"significant strides." For instance, the Court refers to the Legislature's
increase in public school appropriations in the 1990s, its more recent establishment
of a loan and grant fund through which seven school districts received $10 million
to renovate existing facilities and construct new facilities, and its increase
in the facilities levy payback period from ten to twenty years in order to make
such levies more palatable to voters.

Despite its acknowledgement of these actions, however, the Supreme
Court found that the Legislature is currently still in violation of its constitutional
obligations and agreed with the district court's conclusion that the current
system of school facilities funding "based upon loans alone is not adequate
to meet the constitutional mandate to establish and maintain a general, uniform,
and thorough system of public, free common schools in a 'safe environment conducive
to learning' for Idaho's poorest school districts." The Supreme Court demanded
that the Legislature take action.

Defining the Problem: Understanding the Current Facilities
Funding System and School Districts' Costs

Although the Supreme Court concluded that "the current funding
system is simply not sufficient to carry out the Legislature's duty under the
constitution," it did not dictate what the Legislature must do in order
to establish a constitutional funding system. That is the challenge the Legislature
now confronts and the challenge these briefing materials seek to explain. This
explanation depends on a basic understanding of how the current facilities funding
system works and the extent of the costs that districts confront.

The Current Facilities Funding System

Idaho public school facilities are currently funded almost entirely
by local property taxes. This system of facilities funding has its roots in
a long-standing national tradition of funding public education with property
taxes. Interestingly, as additional taxes—income taxes and sales taxes—have
been introduced to support Idaho's public education system in general, school
facilities have remained almost entirely dependent upon property taxes. As a
result, school districts that need funds to maintain existing buildings or construct
new buildings typically try to pass bonds to do so. These bonds allow the districts
to borrow money for renovation or replacement construction which they pay back
by increasing the district residents' property taxes.

As critical as it is for Idaho's school districts to maintain
existing buildings and build new facilities, it is not always easy to pass a
bond. In the current era of rapidly rising property taxes, many Idaho residents
resist voting to increase property taxes yet again. And because Idaho requires
a supermajority of two-thirds in order to pass a facilities bond, this resistance
can result in failed bonds. Poorer school districts and school districts with
aging populations find it particularly difficult to convince two-thirds of their
residents to support bonds in order to pay for school facilities.

Although school districts' reliance on property taxes to maintain
and construct school facilities has meant that the burden for facilities has
been primarily a local one, the State does contribute to the support of school
facilities in two ways. First, the State supports school facilities through
the Bond Levy Equalization Program. Through this program, the State contributes
to the interest payments that school districts make on bonds passed after September
15, 2002. Since 2002, the State has contributed at least 10% and up to 50% of
the interest payments that school districts assume as a result of bonded debt.
These State contributions vary according to the school districts' relative wealth.
Second, the State contributes income from the lottery to pay for school facilities.
In fact, Idaho legalized the lottery with its public schools in mind. According
to statute, half of the lottery's net income is distributed into the school
district building account. School districts may draw on these funds to pay for
bonded debt on a scale drawn according to the average daily attendance of their
students. We should note that while the State contributes to the support of
school facilities in these two ways, the funding source is one and the same.
The State's contribution to the Bond Levy Equalization Program is actually money
that is skimmed off of the lottery income before the balance of that income
is distributed to school districts through the school district building account.

School Districts' Facilities Costs

Despite these sources of State support, the Supreme Court pointed
to the substantial costs that school districts confront in order maintain existing
facilities and construct new facilities when it ruled that the Legislature has
not yet fulfilled its constitutional obligation. Arguably, the Legislature must
understand these costs in order to create a system of facilities funding that
will pass constitutional muster. Regrettably, there is no current, comprehensive
accounting of the various costs that school districts confront. In this section,
we'll review the costs—known and only guessed at—that school districts
confront as they attempt to provide a "safe environment conducive to learning"
for their students.

Bonded Debt Costs

We'll start with the known costs. First, we know the costs that
Idaho schools have already incurred—and must still repay—to renovate
or replace school facilities. As discussed earlier, school districts pass bonds.
These bonds allow the districts to borrow money for renovation or replacement
construction which they must then pay back. As of May 2004, bonded debt for
Idaho school facilities totaled $795 million. As a result of the Bond Levy Equalization
Program, the State currently assists school districts in the repayment of some
of this debt on a sliding scale. School districts receive repayment assistance
for at least 10% of the interest on the debt and up to as much as 50% of the
interest payments on bonds passed after September 15, 2002. As of May 2004,
the State was paying $21 million annually to reduce bonded debt.

Maintenance Costs

Second, we know the annual estimated cost of maintaining existing
school facilities. Experts suggest that a reasonable estimate of annual maintenance
costs for all school buildings is between 2% and 4% of the value of existing
buildings. In the "School District Facility Maintenance Spending, FY05
Analysis," the Legislative Services Office (LSO) reports that the total
square footage of school facilities is 36 million. Valuing each square foot
at $80, the LSO reports a total facilities value of $2.850 billion. Arguably,
then, a reasonable estimate of maintenance costs for Idaho school facilities
lies between $57 million and $114 million per year.

Unsafe Facilities Renovation & Replacement Costs

Although we can estimate annual maintenance costs for Idaho's
existing school facilities and we know exactly what costs the State and school
districts have incurred and continue to incur in order to repay bonded debt,
there is one significant cost we don't know and that is the total amount needed
to renovate or replace school facilities that are currently unsafe. We do know
that the amount is probably substantial. In its recent ruling, the Supreme Court
noted that "overwhelming evidence...document[s] serious facility and funding
problems in the state's public education system." The Court referred, specifically,
to Idaho's 1993 Statewide School Facilities Needs Assessment which determined
that "57% of all Idaho school buildings had 'serious' safety concerns"
and to a 1999 update to that assessment which determined that "53 of the
buildings needing serious and immediate attention in 1993 had deteriorated even
further." Other studies confirm that the costs of addressing imminent safety
concerns could be substantial. A 1992 legislative study suggested that $700
million was required to address current safety concerns while, more recently,
a 2001 task force that reviewed paperwork from building safety inspectors concluded
that, omitting roofs and asbestos, $256 million was needed. Analysts with the
ISEEO have estimated that the current cost may actually range from $600 million
to $900 million dollars.

The fact that the Legislature doesn't know what costs it will
confront as it attempts to revise its school facilities support system in order
to fulfill its constitutional duty was troubling enough to cause Justice Jones
of the Supreme Court to dissent in part from the Court's recent decision. Justice
Jones argued that the Court's decision, based on evidence presented on discrete
school districts, rather than on the state as a whole, meant that the Legislature
couldn't know which, if any, efforts would be sufficient to meet its constitutional
obligations:

That some schools are in severe disrepair does not compel or
even support a conclusion that the statewide system of funding is unconstitutional.
Without reliable information about all schools, the Legislature will be unable
to ensure that any adjustment to the scheme will enable all districts to provide
the kind of facilities they are required to provide under the Constitution.

In his partial dissent, Justice Jones recommended the appointment
of a special master to determine the total costs of establishing a "safe
environment conducive to learning." Interestingly, in 2002 the district
court judge ordered the appointment of a special remedial master to determine
these very costs, arguing that the court "must have current, accurate information
about existing safety hazards and the most cost effective means of addressing
the hazard." It was the State, however, that opposed this decision and
sought a Writ of Prohibition which has, to date, effectively prevented efforts
to discover the exact cost of ensuring the safety of existing Idaho school facilities.

Pending and Proposed Legislation

Although the costs that school districts confront to maintain
and construct facilities that provide "a safe environment conducive to
learning" are not entirely known, the Supreme Court has ruled that the
legislature must act. Accordingly, we now review the pending and proposed legislation
that addresses this issue. In this section we will consider House Joint Resolution
No. 4, which proposes to amend the Idaho Constitution, as well as House Bill
743 and House Bill 691, which both propose revisions to the State's school facilities
funding system. We do not address additional bills that would shift school districts'
reliance on property taxes to other tax streams here because The Common Interest
addresses them in the briefing
materials on property taxes.

House Joint Resolution No. 4

At the conclusion of the recent Supreme Court ruling, the Court
outlined steps that legislatures in other states had taken to fulfill their
constitutional obligation to support education. Reducing the supermajority necessary
to pass a bond was among these. House Joint Resolution No. 4, sponsored by Representative
Steve Smylie, a Republican and a candidate for Superintendent of Public Instruction,
takes just such a step by proposing to allow a school district to pass a bond
so long as it "obtains the assent of no less than sixty percent, rather
than two-thirds, of the qualified electors of the district." House Joint
Resolution No. 4 requires that such a vote must occur on one of four dates during
the year. On two of those dates--the primary and general election dates--districts
could expect a substantial voter turn-out.

Supporters of House Joint Resolution No. 4 point to those Idaho
school districts that would have passed a bond had the supermajority been so
reduced. For instance, the recent Supreme Court decision referred to Jerome
School District #261 where a bond lost with 64.5% voter support in 1996, with
66.3% voter support in 1997; and with 62.5% voter support in 1998. Under House
Joint Resolution No. 4, all three bonds would have passed. Opponents argue,
however, that the Idaho Constitution rightly sets a stringent supermajority
in circumstances where all district residents' taxes will increase as a result
of a passed bond. They note that allowing a bond to pass with only a sixty percent
majority on two dates on which voter turn out might be low even further reduces
the bar.

Any proposed amendment to the Idaho Constitution, including House
Joint Resolution No. 4, must receive two-thirds support in both the House and
and Senate. If it receives this support in the Legislature, the proposed amendment
would then appear on the ballot for the November election where it must receive
a simple majority to pass.

House Bill 743 & House Bill 691

While House Joint Resolution No. 4 does not claim, in and of itself,
to satisfy the Legislature's constitutional obligation, two house bills claim
to fulfill the Legislature's charge irrespective of whether or not House Joint
Resolution No. 4 passes. These bills are the Republican sponsored House Bill
(HB) 743 and the Democrat sponsored House Bill (HB) 691. HB 743 and HB 691 share
a three-part approach to revising the Legislature's support of school facilites.
These three parts include 1) a modification of the current Bond Levy Equalization
Program, 2) the establishment of a school building maintenance program, and
3) the establishment of an emergency mechanism that will allow the state to
renovate or replace school facilities that are currently unsafe when a school
district fails to do so itself.

While we'll consider the structural differences in the proposed
funding programs in the following paragraphs, it is worth noting here that the
primary difference between HB 743 and HB 691 is cost. While HB 743 would increase
school facilities funding by $8 million in ongoing annual contributions and
$25 million in a one-time appropriation, HB 691 would increase school facilities
funding by $63.5 million in ongoing annual contributions and $35 million in
a one-time appropriation. As we compare the bills' parallel programs, we'll
capture the relative recommended funding levels in accompanying tables.

Bond Levy Equalization Program

The Republican sponsored HB 743 would modify the current Bond
Levy Equalization Program in two significant ways. First, it would lift the
restriction on state contributions so that the poorest school districts could
receive more than 50% of their interest payments. While all but the six richest
districts would continue to receive a state contribution of at least 10% of
their interest payments on bonded debt, the poorest school districts would actually
receive state contributions that addressed interest as well as principal. Second,
HB 743 would establish a funding source other than lottery proceeds to fund
the Bond Levy Equalization Program. By dedicating the current cigarette tax
revenues that aren't needed for the Capitol restoration costs, HB 743 would
secure a sustainable funding source for the Bond Levy Equalization Program.
This portion of HB 743 would result in an increased $500,000 of state spending
on school facilities annually.

Supporters of HB 743 argue that this modification of the Bond
Levy Equalization Program is a substantial improvement, both in the amount of
support offered to school districts and the source of that support. Opponents
of HB 743 argue that, while it is an improvement upon the current program, $500,000
is not nearly enough given the magnitude of the need.

The Democrat sponsored HB 691 would modify the current Bond Levy
Equalization Program in four significant ways. First, it would lift the restriction
on state contributions so that the poorest school districts could receive more
than 50% of their redemption payment (interest and principal). Second, it would
reduce the guaranteed state contribution to all districts to 5% of their redemption
payment. As a result, state contributions for all districts would address principal
as well as interest payments on a sliding scale according to the districts'
wealth. Third, HB 691 would allow districts that are still making payments on
bonds passed prior to the enactment of the Bond Levy Equalization Program in
2002 to receive state funding. Finally, HB 691 would provide a funding source
for the Bond Levy Equalization Program by dedicating 5% of all state sales tax
to public school facilities. This portion of HB 691 would result in an increased
$35 million of state spending on school facilities annually.

Supporters of HB 691 argue that this modification to the Bond
Levy Equalization Program is a substantial improvement, both in the amount of
support offered to school districts and the source of that support. They further
argue that it makes the program fair to those districts who shouldered the responsibility
to fund their own school facilities by passing bonds prior to the program's
inception.

Opponents of HB 691 argue that it is prohibitively expensive.
Although the bill's sponsors would dedicate 5% of all state sales tax to fund
school facilities, opponents argue, the sponsors fail to make the hard choices
regarding what programs currently funded by those revenues would need to be
cut or what additional taxes would need to be raised.

Table 1
Current Costs & Recommended State Contributions to Bond Levy Equalization
Program

Bonded Debt for All School Districts as of May 2004

Annual State Contribution as of May 2004

Recommended Increase in Annual State Contribution under
HB 743

Recommended Increase in Annual State Contribution
under HB 691

$795 million

$21 million

$500,000

$35 million

School Building Maintenance Program

The Republican sponsored HB 743 would also establish a school
building maintenance program in order to prevent the facilities crises that
currently arise as a result of long-delayed maintenance. HB 743 would require
every school district to set aside 2% of the value of its existing buildings
for maintenance. To assist school districts in meeting this new requirement,
the state would share in these costs on a sliding scale ranging from a 0.1%
contribution to the wealthiest districts to a 1% contribution to the poorest
districts with an average state match of 0.5%. The state would fund this match
primarily through lottery funds. This maintenance requirement would result in
an increase of $7.5 million of state spending on school facilities annually.
HB 743 would also require that school districts submit a ten year maintenance
plan for state approval. Following the plan's approval, school districts would
be required to report on performed maintenance and any revisions to the maintenance
plan on an annual basis.

Supporters of HB 743 argue that this maintenance requirement is
a substantial improvement upon the current facilities funding system in two
ways. First, it would significantly increase state funds to assist districts
in maintenance work. Second, it would reduce the acute safety crises school
districts confront by delaying needed maintenance by requiring districts to
spend these funds exclusively on facilities maintenance and by requiring districts
to develop and abide by an extended maintenance plan.

Opponents of HB 743 argue that while this maintenance requirement
imposes stringent requirements on districts, it does so without offering substantial
enough funding. While the state contribution to the maintenance fund under HB
743 would be 0.5% of the 2% school districts would be required to save, opponents
point out that the majority of these funds would be lottery funds—meaning
funds that the districts already have. In fact, the state would actually contribute
only slightly more than half of 0.5% in new funding for this program.
As noted above, the total value of Idaho school facilities is $2.850 billion.
Two percent of this value—or the estimated annual maintenance—is
$57 million while 0.5% of this value amounts to $14 million. Opponents argue
that the state's intended contribution of new funds—totaling only $7 million,
or just over half of 0.5% of the total required maintenance amount—would
thus actually impose a requirement on school districts that most of them could
ill afford.

Like HB 743, the Democrat sponsored HB 691 would establish a school
building maintenance program in order to prevent the facilities crises that
currently arise as a result of long-delayed maintenance. And HB 691 would similarly
require every school district to set aside 2% of the value of its existing buildings
for maintenance. However, under HB 691, the State would assist school districts
in meeting this new requirement by matching district contributions on a dollar-to-dollar
basis. As a result, school districts would contribute 1% to the maintenance
program and the state would contribute 1% to the maintenance program. This maintenance
requirement would result in an increase of $28.5 million of state spending.
Under HB 691, the State would fund this program, like its Bond Levy Equalization
Program, out of the 5% of all state sales tax that it would dedicate to public
school facilities. HB 691 would also require that school districts submit a
ten year maintenance plan. Following the plan's approval, school districts would
be required to report on performed maintenance and any revisions to the maintenance
plan on an annual basis.

Supporters of HB 691 argue that this maintenance requirement is
a substantial improvement upon the current facilities funding system in two
ways. First, it would significantly increase state funds to assist districts
in maintenance work. Second, it would reduce the acute safety crises school
districts confront by delaying needed maintenance by requiring districts to
spend these funds exclusively on facilities maintenance and by requiring districts
to develop and abide by an extended maintenance plan.

Opponents of HB 691 argue that the program is prohibitively expensive.
Opponents again argue that although the bill's sponsors would fund maintenance
out of the 5% of all state sales tax dedicated to school facilities, the sponsors
fail to make the hard choices regarding what programs currently funded by those
revenues would need to be cut or what additional taxes would need to be raised.

The final component of Republican sponsored HB 743 would be the
creation of an emergency mechanism through which the state could intervene to
address unsafe facilities that school districts themselves have been unwilling
or unable to address. This mechanism would place $25 million from the State's
general fund in a Public School Facilities Cooperative Fund. In response to
safety concerns identified by school district superintendents or through the
state's school building inspections, this mechanism would allow the state to
develop a plan for renovation and/or construction and appoint a district supervisor
to oversee the implementation of this plan on the school district's behalf.
If district residents failed to pass a bond to finance the state's plan, then
the state would fund the plan, up-front, through the Public School Facilities
Cooperative Fund. The district, would, however, be held responsible for its
share of the plan's cost. Implementation of the plan would automatically result
in a property tax levy in the school district. The amount that district taxpayers
would pay would depend on the levy rate and the relative wealth of the school
district. Wealthier districts would be likely to pay 100% of the project cost
while poorer districts would pay less. No levy would run for more than twenty
years. So, even if the district's taxpayers hadn't repaid their portion within
that time, the levy would end.

Supporters of HB 743 argue that this mechanism would ensure the
safety of every Idaho public school facility without unduly punishing districts
that passed a bond of their own volition by unduly rewarding districts that
had been unwilling or unable to pass a bond.

Opponents offer three arguments against HB 743's emergency mechanism.
First, they argue that the emergency mechanism is unlikely to be used because
neither building inspectors nor district superintendents would reliably report
serious safety issues. Opponents argue that building inspectors wouldn't report
serious safety issues because these inspectors systematically fail to recognize
the most serious safety problems. Opponents argue that current state building
inspections—not necessarily performed by structural engineers—reliably
identify malfunctioning emergency exit signs, for example, while failing to
recognize that buildings are seismically unsound. Opponents argue that the emergency
mechanism would actually discourage school district superintendents from self-reporting
safety issues for a variety of reasons. First, district superintendents would
risk a loss of accreditation through self-reporting. Second, district superintendents
would knowingly dilute school funds through self-reporting because the emergency
mechanism would ultimately make the district bear the expense of maintenance
and/or construction through the imposition of increased property taxes. Third,
district superintendents might resist the appointment of a state district supervisor
who, hired at the district's own expense, would have the power to alter any
facilities plans the district had developed as well as the power to fire the
district superintendent.

Second, opponents argue that even if the emergency mechanism were
invoked, it would proceed too slowly to address the critical safety issues that
now confront Idaho's public schools facilities. Because the emergency mechanism
would require state approval of any maintenance and/or construction plans, and
would then require that the state-approved plan be submitted to district voters
at a new bond election, months, if not years, might pass between the identification
of a safety concern and the implementation of a solution.

Third, opponents argue that the emergency mechanism may, in fact,
be unconstitutional. Imposing a bond on district residents who had refused to
pass a bond may violate Idaho's constitution. These opponents argue that even
if its emergency mechanism is constitutional, HB 743 still relies on loan repayment
to address school facilities safety issues and point to the recent Supreme Court
ruling that "reliance on loans alone" is an "inadequate"
facilities funding solution.

Like HB 743, the final component of Democrat
sponsored HB 691 would be the creation of an emergency mechanism through which
districts or the state could access funds to address unsafe facilities that
school districts themselves have been unable or unwilling to address. This mechanism
would place $35 million for this purpose from the State's general fund in the
School District Building Account. School districts or the State Department of
Education could access these funds to renovate or replace unsafe school facilities.
Upon receipt of application, the State Department would disburse the funds to
the district. The department would require the school district to report on
its use of the funds the following year. The department would also determine,
in negotiation with the district, the portion of the funds that the district
must repay and establish a repayment schedule. HB 691 does not specify the interest
rate at which the State would loan this money. However, if the district failed
to make scheduled payments, the department would charge 12% interest on the
past-due amount and "take immediate action with the district to bring about
resolution of the unpaid amount."

Supporters of HB 691 argue that this mechanism would ensure that
every Idaho public school facility is safe. Supporters argue that both school
districts and the State Department of Education would willingly avail themselves
of the emergency mechanism for two reasons. First, the process would be easily
and swiftly accessible and would leave control over maintenance and/or new construction
plans at the district level. Second, the process would not impose a bond on
district residents. The district's payments would not be assessed as a levy
on property taxes, but would remain the responsibility of the school district.
These payments could even take the form of lease payments through which the
State Department of Education would become the owner of a particular school
district facility which the district then leased from the state.

Opponents offer two arguments against HB 691's emergency mechanism.
First, they argue that the emergency mechanism places substantial trust as well
as state funds in the control of school districts whose past record on maintenance
and construction may prove them unfit for that trust. Opponents argue that these
school districts can't be trusted to spend facilities funds on facilities without
state oversight. Second, opponents argue that the emergency mechanism is, like
the other components of HB 691, prohibitively expensive.

Supporters of HB 691 respond to all opponents' arguments regarding
expense by saying that the recent Supreme Court ruling requires the state to
contribute substantial financial support to the maintenance and construction
of public school facilities. Supporters of HB 691 argue that after fifteen years
of delay, the state must appropriate such significant funds.